What we can learn from PAE's public company debut

Day one of PAE’s new era as a publicly-traded government services company on the Nasdaq exchange was brought to them by the color green as the stock closed 3 percent higher to $11.50.

Day two ended with the stock at $11.60, but this next chapter for the 65-year old contractor is more than just watching the share price move. It also allows market watchers to look at the once private equity-backed company through a different lens.

Here is a brief reset and some information we did not know before.

Meet PAE’s management team

The two PAE executives that investors will hear from and get to question the most are CEO John Heller and Chief Financial Officer Charles Peiffer.

Heller joined in 2013 after a stint at Engility, where he led that company’s spinoff and entry to the public markets from former parent L3 Technologies. Peiffer came on board in 2014 from the CFO position at IAP Worldwide Services.

Other senior leadership team members include:

• Charles Anderson, president of the global mission services segment
• Chico Moline, president of the national security solutions segment
• Patricia Munchel, chief human resources officer
• Whit Cobb, general counsel
• James Benton, vice president and chief information officer
• Regina Galvin, vice president of marketing and communications
• Adam Harrison, just-named vice president of strategy and corporate development
• Karina Vollmer, chief ethics and compliance officer

How PAE went public

It is helpful to first revisit the path up to this point for the Falls Church, Virginia-based company. Lockheed Martin acquired PAE in 2006, then sold the contractor to private equity firm Lindsay Goldberg in 2011. PAE was purchased again in 2016 by another private equity firm in Platinum Equity.

But this is not a traditional initial public offering like Parsons Corp.’s IPO last year. PAE was essentially acquired by a special purpose acquisition company, or “SPAC,” that is backed by private equity firm The Gores Group, which raised $400 million and offered $220 million in private placement investments to institutional investors.

End result: the SPAC and those investors now own 77 percent of the shares in PAE. Platinum Equity holds the remaining 23 percent.

What PAE gets

An immediate boon to PAE from this transaction is that the company’s debt ratio shrinks from 5.0 to 3.4 times adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). That ratio is a measurement of how much room a company has to make acquisitions.

That balance sheet, coupled with PAE’s low capital expenditures and free cash flow could allow it to continue making acquisitions -- of which it has made five since 2013.

Organic growth pursuits are also part of the story for PAE. In an investor presentation to explain the deal with Gores Group, PAE said it submitted nearly $15.4 billion in proposals during 2018 versus $4.6 billion in 2017.

PAE has set a long-term target of an 8-percent adjusted EBITDA margin from the current 6 percent, according to its investor presentation on the deal. Reaching that will involve a combination of bidding more higher-margin contracts, acquiring higher-margin businesses and achieving efficiencies on current contracts.

Who PAE’s customers are

The fact that PAE had these customers is not new. But being able to look under the hood and see what the mix looks like is new thanks to an investor presentation and regulatory filings the company must make now that it is a publicly-traded company.

PAE’s investor presentation and regulatory filings show that for 2018, nearly 35 percent of PAE revenue came from contracts with the Defense Department and another 26 percent from work for the State Department. The Department of Homeland Security represents 13 percent of revenue and NASA comes out to 9 percent.

The company also touted its global presence with having 20,350 staffers in at least 60 countries that provide services in logistics and stability operations, infrastructure management, force readiness, information optimization and counter-threat solutions.